Accounting for Customer Overpayments

I would create a clearing account if you don't already have one, and transfer the second charge to that account. That way, you have a balance sitting in the clearing account until you process the adjustments, which should go to this same account to clear the balance. All the entries are then quite visible and reconcilable.

Ken Russell

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My question was should the Clearing account be a current asset or current liability.

Setting up another account would just create clutter in your chart of accounts. I would recommend that you just apply the overpayment to the customer's account (Dr to cash, Cr to A/R). The credit balance will show on the customer's account (and statement). This is where it should show. Your accounting records will reflect the economic activity that occurred.

When the charge is reversed, then an entry will bring the customer's account back into balance... (Dr to A/R, Cr to cash).

A final thought... if everything cleared in four days, then besides maintaining your customer's goodwill, it really won't matter (unless the timing of the events crosses over fiscal periods)

Just my thoughts...

Regards, Russell Tuncap, CMA, CPA